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Where is the economics in spatial econometrics?

Corrado, Luisa and Fingleton, Bernard (2011) Where is the economics in spatial econometrics? SERC Discussion Papers, SERCDP0071. Spatial Economics Research Centre (SERC), London School of Economics and Political Sciences, London, UK.

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Abstract

Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the effects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.

Item Type: Monograph (Working Paper)
Official URL: http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information: © 2011 Luisa Corrado and Bernard Fingleton
Library of Congress subject classification: G Geography. Anthropology. Recreation > G Geography (General)
H Social Sciences > HC Economic History and Conditions
Journal of Economic Literature Classification System: O - Economic Development, Technological Change, and Growth > O1 - Economic Development
Sets: Research centres and groups > Spatial Economics Research Centre
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: SERCDP0071
Date Deposited: 28 Mar 2011 10:42
URL: http://eprints.lse.ac.uk/33581/

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